How Much Should I Contribute to My Pension

How Much Should I Contribute to My Pension?

Deciding how much to contribute to your pension can feel overwhelming, especially when you have other financial priorities. The right amount depends on your age, earnings, retirement goals, and whether your employer also contributes.

This article explains how to work out how much you should be paying into your pension, what employers contribute, and how your contributions can make a difference over time.

Is there a recommended percentage?

A common rule of thumb used by financial planners is to aim for half your age as a percentage of your income. For example:

• If you start saving at age 25, aim to contribute around 12.5 percent of your income

• If you start at 35, aim for around 17.5 percent

This includes both your own contributions and anything your employer pays in. The earlier you start saving, the less you need to put in, because your money has more time to grow.

What is the legal minimum?

Under the UK’s auto enrolment rules, the minimum total contribution into a workplace pension is currently:

• 8 percent of qualifying earnings, made up of:

• 5 percent from the employee, including tax relief

• 3 percent from the employer

This is the bare minimum. While better than nothing, it may not be enough to provide a comfortable retirement.

How much is enough for retirement?

The Pensions and Lifetime Savings Association (PLSA) publishes retirement income guidelines to help people plan. According to their estimates:

• A single person needs around £14,400 per year for a basic retirement

• Around £23,300 per year provides a moderate retirement

• Around £37,300 per year supports a more comfortable lifestyle

To achieve a moderate income alongside the State Pension, most people would need to build up a private pension pot of £300,000 to £400,000, depending on when they start saving and how the money is used.

How much should I contribute in my twenties?

If you are in your twenties, this is the ideal time to start saving for retirement. A small contribution now can grow significantly over time.

Aim to contribute at least 10 to 15 percent of your income if you can. Even if you can only afford the minimum, it is important to start early and increase your contributions gradually as your earnings grow.

How much should I contribute in my thirties or forties?

If you have started a little later, you may need to increase your contributions to make up for lost time.

In your thirties, aim for 15 to 20 percent of your income if possible. In your forties, you may need to contribute 20 to 25 percent or more to stay on track.

These figures can seem high, but remember this includes your employer’s share. You can also make one-off contributions if you receive a bonus or inheritance.

What about in your fifties or sixties?

If you are approaching retirement and have not saved enough, it is still worth contributing more if you can. You may want to:

• Increase your regular contributions

• Make lump sum payments

• Delay retirement to give your pension more time to grow

• Reduce your expenses and focus on saving in your final working years

There is no upper age limit for contributing, and you still receive tax relief until age 75.

How does tax relief work?

Tax relief boosts your pension contributions. For example:

• A basic rate taxpayer pays £80 and gets £20 tax relief, so £100 goes into the pension

• Higher rate taxpayers can claim additional relief through Self Assessment

This makes pension contributions one of the most tax-efficient ways to save.

Can I contribute too much?

Yes. There are annual and lifetime limits for pension contributions that qualify for tax relief:

• The annual allowance is £60,000 or 100 percent of your earnings, whichever is lower

• If you exceed this, you may pay a tax charge

• If you have accessed your pension flexibly, your annual allowance may reduce to £10,000 under the Money Purchase Annual Allowance

As of April 2024, the lifetime allowance has been abolished, but limits still apply to how much tax-free lump sum you can take.

Final thoughts

There is no one-size-fits-all answer to how much you should contribute to your pension, but aiming for at least 12 to 15 percent of your income is a good starting point. The earlier you begin, the more time your money has to grow, and the less pressure you will face later in life.

Review your pension contributions regularly, especially when your income changes. Use online calculators, speak to your employer, or get advice from a financial adviser to help you plan effectively for a secure retirement.